When you hear the phrase 'ASX dividend shares', it will usually be accompanied by the name of one of the ASX big four banks like Commonwealth Bank of Australia (ASX: CBA). Or maybe BHP Group Ltd (ASX: BHP) or even Wesfarmers Ltd (ASX: WES). These massive companies have been providing a steady flow of fully franked dividends to their shareholders for decades now.
I would even wager that most retirees invested in ASX shares would have at least one of these names in their portfolio (if not all of them).
In comparison, real estate investment trusts (REITs) don't seem to attract anywhere near as much attention. That's despite the fact that the yields you can get from REITs compare favourably to most dividend-paying companies out there (albeit usually without franking).
The boom in property prices that Australia as a whole has experienced over the last decade has also translated into massive capital gains across the sector. For example, shares of popular REIT Goodman Group (ASX: GMG) have enjoyed a massive 1,422% gain over the last decade.
Why are investors wary of REITs?
It's possible that many investors still consider REITs dangerous, as a consequence of the GFC a decade ago. The GFC was particularly vicious for REITs and they had to deal with the twin threats of falling property values and a credit crunch. For some context, Stockland Corporation Ltd (ASX: SGP) saw its share price fall from over $8.80 to around $2.20 between December 2007 and March 2009.
Why I'm bullish on REITS for 2020
I think some of these fears are preventing income investors from gaining some valuable stocks for their portfolios today. It's unlikely (in my opinion) that any future recessions will have the same kind of 'perfect storm' conditions for REITs that the GFC did.
And although REITs don't come with franking credits attached, that's actually because REITs don't pay company tax on the to-be distributed cash in the first place. That means REIT distributions theoretically already contain most of the benefits of franking.
For these reasons, I think REITs can play a useful role in a diversified income portfolio in 2020. Stockland shares offer a trailing yield of 5.76% today. Scentre Group (ASX: SCG) is another top REIT offering a 4.87% yield. Those are hard returns to ignore, in my view.
